Brutal report claims US economy would be 'diminished' under Trump's policies

Republican presidential candidate Donald Trump at The Fox Theatre in Atlanta on June 15.
REUTERS/Chris Aluka Berry
Donald Trump's economic and business policies are coming under fire at a time when his presidential campaign appears to be falling further behind that of presumptive Democratic nominee Hillary Clinton.

A new report from Moody's Analytics examined the potential economic impact of a Trump presidency, and it determined that Trump's policies would lead to a "lengthy recession."

"Under the scenario in which all his stated policies become law in the manner proposed, the economy suffers a lengthy recession and is smaller at the end of his four-year term than when he took office," Mark Zandi, the chief economist at Moody's and an adviser to Sen. John McCain's 2008 presidential campaign, wrote in the report.

The Trump campaign hit back at the report Tuesday, noting that Zandi had donated to Clinton's 2016 presidential campaign and that he had advised the Obama administration on its stimulus and mortgage-restructuring proposals.

Zandi and his team analyzed numerous scenarios — all of the presumptive Republican nominee's policies being passed as he has stated them, a few being passed, and watered-down versions being passed in Congress — but each scenario ended with an underperforming economy, according to Moody's analysis.

"The upshot of Mr. Trump's economic policy positions under almost any scenario is that the US economy will be more isolated and diminished," the report said.

In fact, across all scenarios Zandi and his team came to four basic conclusions. From the report:

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"Even allowing for some variability in the accuracy of the economic modeling and underlying assumptions that drive the analysis, four basic conclusions regarding the impact of Mr. Trump's economic proposals can be reached: 1) they will result in a less global US economy; 2) they will lead to larger government deficits and more debt; 3) they will largely benefit very high-income households; and 4) they will result in a weaker US economy, with fewer jobs and higher unemployment."

Nearly every proposal that Trump has made, whether his tax proposal or his plan to deport the estimated 11 million immigrants who are living in the country illegally, led to a lower estimate of gross domestic product in the Moody's model.

Moody's Analytics

Zandi highlighted three policy proposals in particular:

The lowering of the tax rate: Without the tax revenue, Zandi expects the deficit to expand to more than $9 trillion over the next 10 years. This would lead to the curtailing of investment from the public sector in economically beneficial programs. This would also affect households. "Businesses' cost of capital and households' borrowing costs are much higher, despite the lower marginal rates, which act as a corrosive on investment and ultimately on productivity and GDP growth," the report said.

The deportation of immigrants living in the US illegally: This would act as a "supply shock" for the labor market, pushing up labor costs, crushing corporate margins, and force businesses to raise prices dramatically. "The tight job market and higher inflation prompts the Federal Reserve to normalize interest rates quickly, and then to push rates above their long-run equilibrium," the Moody's report read.

Higher tariffs on foreign trade: This will make the cost of goods increase as imports from goods producers such as Mexico and Chine increase, with Trump's skepticism on trade also affecting US exports. "The hit to U.S. exports from the higher Chinese and Mexican tariffs and stronger U.S. dollar is significant," the report said. "At the peak of the impact in 2019, U.S. real exports are reduced by nearly $85 billion, according the Moody's Analytics model."

Clinton is also preparing to take aim at Trump's economic policies. On Tuesday the presumptive Democratic nominee plans to hit Trump on economics and business during a speech in Columbus, Ohio.

In conjunction with the speech, Clinton's campaign also rolled out a website attacking Trump's business record — titled "Art of the Steal" — which among other things highlighted his failed Atlantic City casino business and compared his ability to grow his wealth with a basic index fund.

"Donald Trump is a fundamentally bad businessman, and to the extent he has made money, he's done it in part by hurting middle class families and small businesses," the website said. "His bankruptcies have left contractors and small businesses holding the bag."